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Questions and Answers
What determines the price in a perfectly competitive market?
What determines the price in a perfectly competitive market?
What shape is a perfectly competitive firm's demand curve?
What shape is a perfectly competitive firm's demand curve?
How is total revenue (TR) for a perfectly competitive firm calculated?
How is total revenue (TR) for a perfectly competitive firm calculated?
In perfect competition, what is true about marginal revenue (MR)?
In perfect competition, what is true about marginal revenue (MR)?
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What do firms in a perfectly competitive market earn in the long run?
What do firms in a perfectly competitive market earn in the long run?
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Which of the following is NOT a characteristic of perfect competition?
Which of the following is NOT a characteristic of perfect competition?
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In the short run, a firm will continue operating if:
In the short run, a firm will continue operating if:
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Long-run equilibrium in perfect competition occurs when:
Long-run equilibrium in perfect competition occurs when:
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What defines a monopoly market structure?
What defines a monopoly market structure?
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The demand curve for a monopolist is typically:
The demand curve for a monopolist is typically:
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Marginal revenue for a monopolist is:
Marginal revenue for a monopolist is:
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Profit maximization for a monopolist occurs when:
Profit maximization for a monopolist occurs when:
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A barrier to entry in a monopoly might include:
A barrier to entry in a monopoly might include:
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The welfare cost of monopoly primarily occurs due to:
The welfare cost of monopoly primarily occurs due to:
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Price discrimination by a monopolist occurs when:
Price discrimination by a monopolist occurs when:
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Study Notes
Perfect Competition
- Price Determination: Price is determined by market supply and demand, not by individual firms.
- Demand Curve: A perfectly competitive firm's demand curve is horizontal at the market price.
- Total Revenue (TR): Calculated as Price × Quantity or Average Revenue × Quantity.
- Marginal Revenue (MR): Equal to the price in perfect competition.
- Economic Profit: Calculated as Total Revenue minus the sum of explicit and implicit costs.
- Accounting Profit: Excludes implicit costs.
- Sunk Costs: Irrecoverable costs.
- Profit Maximization: Occurs when Marginal Cost (MC) equals Marginal Revenue (MR).
- Shutdown Point: Firms should shut down if price falls below Average Variable Cost (AVC).
- Long-Run Equilibrium: Firms earn zero economic profit in the long run.
- Short-Run Supply Curve: The firm's marginal cost curve above the average variable cost curve.
- Market Entry: Entry of new firms reduces long-run economic profits to zero.
- Features of Perfect Competition: Homogeneous products, free entry and exit, numerous buyers and sellers.
- Short-Run Operation: Firms continue operating if price is above average variable cost.
- Long-Run Equilibrium Characteristics: Price equals marginal cost, average total cost, and zero economic profit
Monopoly
- Market Structure: A monopoly has one seller.
- Demand Curve: A downward-sloping demand curve.
- Marginal Revenue (MR): Less than price.
- Profit Maximization: Occurs where Marginal Revenue (MR) equals Marginal Cost (MC).
- Barriers to Entry: May include economies of scale, legal restrictions, and high startup costs.
- Welfare Cost: Underproduction relative to perfect competition leads to a deadweight loss.
- Price Discrimination: Charging different prices to different customers.
- Natural Monopoly: Economies of scale dominate production.
- Output Compared to Perfect Competition: Monopolies produce less output at a higher price.
- Deadweight Loss: Reduction in total surplus caused by underproduction.
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Description
This quiz covers the key concepts of perfect competition, including price determination, demand curves, and profit maximization. Understand the conditions under which firms operate and how market dynamics affect their decisions. Delve into economic and accounting profits, as well as long-run equilibrium in competitive markets.
